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Crm Enterprises

In: Business and Management

Submitted By divya12345
Words 410
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CMR ENTERPRISES
Q1: How profitable is Blackstone business?
Solution:
Commercial: * Contribution margin = 48% * Variable cost=52% * COGS = 34% * Other variable overhead = 18%

Residential: * Contribution margin = 38% * Variable cost = 62% * COGS = 26% * Other variable overheads =36%

In year 1: Monopoly enabled CMR to gain 25% of its residential revenues from Blackstone customers
In year 2: Increased prices by 7% resulting in overall increase of 15-20% for customers of Blackstone

The revenue earned from Blackstone is $210,314. The variable overheads are double that of commercial because they have to invest extra time (90 mins) and also the conversion efficiency is less. If this is reduced to half i.e. the original value the contribution margin rises to 0.56 which is higher than commercial. Also COGS of 26% are sold at 100. This implies COGS of 34% is sold will be sold at 130.
Thus, we are already selling at higher price due to the extra time being spent. Although, a fully aware customer will be ready to pay higher price yet this situation cannot be fully explained to them. Hence, 7% increase in price in 2nd year is not a viable strategy in this case.
Q2: What should CMR do about the Blackstone Account?
Solution:
Problem areas with Blackstone: * It is not a strategic fit * There is rigidity in cash flows * There were project coordination problems among different subcontractors * Reluctance from Blackstone to share their information * Less focus on the Residential business than the commercial business as seen in case of InfoCentral

CMR should not lose Blackstone because: * Revenue earned from Blackstone= $210,314 * 25.46% of top 15 residential accounts with Blackstone * Blackstone is one of the biggest source of earning for the CMR * CMR needs growth to pay its debt &…...

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